ITO, New Delhi V. M/s Premium Buildwell (P) Ltd., New Delhi

ITA 2498/DEL/2011

• Counselvise Citation: 249820114 RSA 2011
• Duration Of Justice: 1 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 25-07-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 13-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJIV RANKA
• Keywords: Principle of natural justice

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F NEW DELHI) BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.2498/DEL/2011 ASSESSMENT YEAR : 2007-08 ITO, M/S PREMIUM BUILDWEL (P) LTD., WARD-14 (3), A-53, PRASHANT VIHAR, NEW DELHI. V. NEW DELHI. (APPELLANT) (RESPONDENT) PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO.AADCP AADCP AADCP AADCP- -- -9915 9915 9915 9915- -- -B BB B APPELLANT BY : SHRI RAJIV RANKA, SR. DR. RESPONDENT BY : SHRI SURESH KUMAR GUPTA. ORDER PER TS KAPOOR, AM: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE OR DER OF LD CIT(A) DATED 17.2.2011. THE GROUNDS RAISED BY THE REVENUE A RE AS UNDER:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT(A) ERRED IN DELETING THE ADDITION OF ` .1,41,74,510/- MADE ON ACCOUNT OF ADVANCE RECEIVED FROM CLIENTS AGAINST THE BOOKINGS OF SHOPS BY ACCEPTING THE ASSESSEES CONTENTION TH AT HE WAS MAINTAINING THE ACCOUNTS ON PROJECT COMPLETION METHOD. THE CIT(A) ALSO FAILED TO APPRECIATE THE FACT THAT THESE ADVANCES ARE NONE OTHER THAN ACCRUED INCOME OF THE ASSESSEE AS TH E PROJECT WAS COMPLETED DURING THE YEAR AND FURTHER EX PENSES WERE PENDING TO BE BOOKED. ITA NO2498/DEL/2011 2 2. THE APPELLANT CRAVES TO BE ALLOWED TO ADD ANY FRESH G ROUNDS OF APPEAL AND/OR DELETE OR AMEND ANY OF THE GROUNDS OF APPEAL. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND IS ENGAGED IN THE BUSINESS AS BUILDE R AND DEVELOPER. RETURN FOR THE YEAR UNDER CONSIDERATION WAS FILED ON 31.10.2007. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUT INY UNDER CASS. DURING ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT ASSESSEE HAD RECEIVED A SUM OF ` .1,55,09,000/- FROM CUSTOMERS AS ADVANCE AGAINST THE BOOKING OF SHOPS AND THE ASSESSEE H AD BOOKED UNDER SALE AMOUNT TO THE EXTENT OF ` .13,34,430/- ONLY AND THE BALANCE AMOUNT OF ` .1,41,74,510/- HAS BEEN SHOWN BY THE ASSESSEE AS ADVANCE IN THE BALANCE SHEET. THE ASSESSING OFFICER ASKED THE ASSE SSEE TO EXPLAIN THAT SINCE THE PROJECT WAS COMPLETED AS NO FUR THER EXPENSES WERE PENDING TO BE BOOKED THEN WHY NOT AS PER PERCEN TAGE COMPLETION METHOD THE COMPLETE AMOUNT OF ADVANCES RE CEIVED FROM CUSTOMERS AGAINST SALE PRICE OF SHOPS BE CONSIDERED AS THE TRADING RECEIPTS OF THE ASSESSEE AND TAXED ACCORDINGLY. THE LD AR DID NOT SUBMIT ANY REPLY IN THIS REGARD. THE ASSESSING OFFICER, D URING THE ASSESSMENT PROCEEDINGS INFORMED THE LD AR ABOUT NUMEROUS JUDICIAL PRONOUNCEMENTS AND PARTICULARLY THE CASE LAW REPORTED IN THE CASE OF COMMISSIONER OF INCOME TAX, ORISSA. V. NANDRAM HUNATRA M. 103 ITR 433. & IN THE CASE OF UTTAM SINGH DUGGAL IN 127 ITR 21 WAS REFERRED WHEREIN IT WAS HELD THAT ADVANCE PAYMENTS RECEIVED ON ACCOUNT OF SALE VESTED A RIGHT OR INTEREST IS ACQUIRED IN THE PRO PERTY AND HENCE THESE ADVANCES ASSUME THE CHARACTER OF TRADING RECEIPTS IN THE PECULIAR NATURE OF CONSTRUCTION BUSINESS. THE ASSESSING OFF ICER FURTHER OBSERVED THAT AS PER BALANCE SHEET, THE PROJECT WAS COM PLETE BUT ASSESSEE HAD DELIBERATELY NOT SHOWN THE TRADING RECEIPTS AS SALES SO AS TO DEFER THE TAX LIABILITY. A NUMBER OF CASE LAWS WAS DISCUSSED IN THE ITA NO2498/DEL/2011 3 ASSESSMENT ORDER AND ULTIMATELY THE ASSESSING OFFICER CONCL UDED THAT ADVANCE OF ` .1,41,74,510/- IS THE INCOME OF THE ASSESSEE. 3. DISSATISFIED WITH THE ORDER OF ASSESSING OFFICER, THE ASSESSEE FILED APPEAL BEFORE LD CIT(A) AND SUBMITTED AS UNDER:- A) THAT ASSESSING OFFICER HAS CONSIDERED THE ABOVE AMOUNT A S THE SALE CONSIDERATION IN VIEW OF THE FACT THAT PROJECT W AS COMPLETED IGNORING THE FACT EVEN IF IT IS TREATED A SALE AMOUNT , THE VALUE OF STOCK SHOULD HAVE BEEN REDUCED TO THAT EXTENT TO ARRI VE AT THE TRUE PROFIT. B) THE ACTION OF THE ASSESSING OFFICER IN TAKING THE ENTIR E SALE CONSIDERATION AS PROFIT IS A GROSS VIOLATION OF THE PRIN CIPLE OF ACCOUNTING. THERE IS NO BASIS OR MATERIAL OR THE RATIO OF ARGUMENT PUT FORWARD BY ASSESSING OFFICER IN SUPPORT OF HIS ABOVE ASSUMPTION AND SINCE THE ADDITION IS BASED ON WRONG ASSUMPTION, THE ACTION OF THE ASSESSING OFFICER NEEDS TO B E QUASHED. C) THAT THE ASSESSING OFFICER HAS ASSUMED THAT PROJECT UNDERT AKEN BY THE APPELLANT WAS COMPLETE BUT THIS WAS NOT CORRECT . D) THAT AS A MATTER OF FACT, THE AMOUNT WAS RECEIVED FRO M THESE PARTIES WITH THE UNDERSTANDING THAT THEY HAD THE OPTI ON FOR BUYING THE SHOPS WHEN THE PROJECT COMES TO THE FINALIZ ATION STAGE AND IF THEY SO OPT THE COMPANY WAS BOUND TO GIVE THEM THE AREA BOOKED AND IN CASE THEY DO NOT, THEY HAVE T HE OPTION TO TAKE BACK THE MONEY. IN THE PRESENT CASE, THE AMOUNT HAS BEEN REFUNDED IN SOME CASES AND IN OTHER CASES THE SHOPS HAS BE EN SOLD AND THIS PROVES THAT SALE HAD NOT TAKEN PLACE WHEN THE AMOUNT WAS RECEIVED. E) THAT OUT OF TOTAL AMOUNT OF ` .1,41,74,510/-, ` .70,72,510/- ITA NO2498/DEL/2011 4 RESULTED INTO SALE IN THE NEXT YEAR AND THE BALANCE A MOUNT OF ` .71,02,000/- WAS RETURNED TO ONE OF THE PARTIES. F) THAT HON'BLE BANGALORE ITAT IN THE CASE OF MADHUVAN A HOUSE BUILDING COOPERATIVE SOCIETY V. ACIT 76 TTJ 948 HAD HELD THAT THE ASSESSEE IS ENTITLED TO ADOPT SUCH METHOD OF ACCOUNTING A S WOULD GIVE COMPLETE PICTURE OF TRUE INCOME OF THE A SSESSEE PROVIDED THE SAME IS REGULARLY EMPLOYED. IN THIS LINE OF CIVIL CONSTRUCTION BUSINESS WHEN THE DURATION OF PROJECT IS SPR EAD OVER SEVERAL YEARS , THE COMPLETED CONTRACT METHOD OF ACCO UNTING IS PREFERABLE AS UNFORESEEN EXPENDITURE ON ACCOUNT OF ESC ALATION IN PRICE ETC. MAY ARISE DURING THE LATER STAGE OF THE PR OJECT. THEREFORE, DURING PENDENCY OF WORK INCOME OR LOSS CA NNOT BE ASCERTAINED. G) THAT THE CASE LAWS RELIED UPON BY THE ASSESSING OFFICER ARE IN RELATION TO THE PROJECT WHERE MAJOR EXPENSES ARE INCU RRED AND THERE IS NO VARIABLE COST TO BE MET. IN THE CASE OF T HE APPELLANT, THE ENTIRE PROFIT COULD BE WASHED OUT IF THE SHOPS ARE NOT SOLD IN TIME AND BANK INTEREST COULD TAKE AWAY WHATEVER PROF IT COULD BE ACCOUNTED FOR. IN THE PRESENT CASE, THE APPELLANT HA S OFFERED FOR TAXATION INCOME YEAR TO YEAR ON THE BASIS OF THE SALE MADE AND THEREFORE IT IS WRONG TO SAY THAT THE ASSESSEE HAS EMPLO YED THE PROJECT COMPLETION METHOD. 4. THE LD CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE AGREED WITH THE CONTENTIONS OF LD AR AND DELETED THE ADDITION. THE RELEVANT PARA OF LD CIT(A)S ORDER IS REPRODUCED BELO W:- I HAVE CAREFULLY CONSIDERED THE REMARKS OF THE ASSESSING OFFICER AND ALSO THE SUBMISSION OF THE APPELLANT. OUT OF TOTAL ADVANCES OF ` .1,55,09,000/- THERE HAS BEEN SALE AGAINST ABOVE ADVA NCE TO ITA NO2498/DEL/2011 5 THE EXTENT OF ` .13,34,490/- DURING THE YEAR UNDER CONSIDERATION. THE DETAIL AND SUBSEQUENT TREATMENT OF BALANCE AMOUNT OF ` .1,41,74,510/- IS AS UNDER:- --------------------------------------------------- ------------------------------------------------ NAME OF THE PARTY AMOUNT SUBSEQUENT ADJUSTMENT OUTSTANDING IN F.Y. 2007-08. AS ON 31.3.2007 M/S EAGLE BUILDCON (P) LTD. 66,25,000/- SALES OF ` .66,25,000/- MADE IN FY 07-08. M/S BMRCV CONSTRUCTION (P) LTD. 75,49,510/- SALES OF ` .4,47,510/- AND BALANCE ` .71,02,000/- REFUNDED BACK IN F.Y. 2007-08. FROM THE ABOVE TABLE, IT IS APPARENT THAT OUT OF TOT AL ADVANCES O0F ` .11,41,74,510/- AMOUNT OF ` .71,02,000/- HAS BEEN REFUNDED BACK IN THE SUBSEQUENT YEAR AND BALANCE `.70,72,510/- HAS BEEN BOOKED AS SALES. THERE CAN BE NO RATIONALE FOR TREATI NG THE ABOVE ADVANCES OF ` .1,41,74,510/- AS INCOME FOR THE YEAR WHEN SUCH ADVANCE REPRESENTS EITHER ADVANCE AGAINST SALES OR THE A DVANCE WHICH WAS REFUNDABLE. THE CONFIRMATION OF THE ABOVE ADVANCES HAVE BEEN FURNISHED BY THE APPELLANT AND THERE IS NO DISPUTE BY THE ASSESSING OFFICER ABOUT THE GENUINENESS OF THESE ADVAN CES. MERE ACCEPTANCE OF ADVANCE WHICH IS REFUNDABLE AT TH E OPTION OF THE OTHER PARTY CANNOT BE TREATED AS CONTRACTED SALE S MUCH LESS THE INCOME OF THE APPELLANT AS HAS BEEN TAKEN BY THE ASSESSING OFFICER. THE AMOUNT WHICH WAS REFUNDABLE AND WHICH H AS IN FACT BEEN REFUNDED CANNOT BE TREATED AS INCOME. SIMILARLY THE AMOUNT WHICH HAS BEEN DISCLOSED AND DECLARED AS SALES IN THE ITA NO2498/DEL/2011 6 SUBSEQUENT YEAR CANNOT BE TREATED AS SALE OR INCOME OF THE APPELLANT FOR THE YEAR UNDER CONSIDERATION. THE TAX RATE FOR THE YEAR UNDER CONSIDERATION AS WELL AS FOR THE SUBSEQUENT Y EAR ARE MORE OR LESS THE SAME AND THEREFORE NO MALA FIDE INTE NTION ON THE PART OF THE APPELLANT CAN BE INFERRED SO AS TO P OSTPONE THE ACCRUAL OF SALES OF THE YEAR TO THE NEXT YEAR. IN MY CONSIDERED OPINION, THERE IS NO BASIS OR THE JUSTIFICATION IN THE ADDITION MADE BY THE ASSESSING OFFICER. THE ADDITION MADE BY THE ASSESSI NG OFFICER IS THEREFORE DELETED. THIS GROUND OF APPEAL I S ALLOWED. 5. AGGRIEVED, THE REVENUE FILED APPEAL BEFORE THIS T RIBUNAL. 6. AT THE OUTSET THE LD DR ARGUED THAT THE AMOUNT WA S RECEIVED DURING THE ASSESSMENT YEAR UNDER CONSIDERATION FROM TWO PARTIES NAMELY M/S EAGLE BUILDCON LTD. AND M/S BMRC CONSTRUCTI ON PVT. LTD. AMOUNTING TO ` .66,25,000/- AND ` .75,49,510/- RESPECTIVELY. HE FURTHER ARGUED THAT SINCE PROJECT WAS COMPLETED AND ASSESSEE HAD RECEIVED THE SALE CONSIDERATION SO SALE SHOULD HAVE BEEN BOOKED. HE FURTHER ARGUED THAT NO AGREEMENTS WITH THE PARTIES GIVING OPT ION TO BUYERS WAS FILED WITH LD CIT(A). . THEREFORE, IN VIEW OF TH E ABOVE FACT, HE ARGUED THAT ASSESSEE HAD DELIBERATELY NOT ACCOUNTED TH E TRADING RECEIPTS AS SALE JUST TO POSTPONE THE TAX LIABILITY. HE FURTHER ARGUED THAT THE OBSERVATION OF LD CIT(A) THAT THERE WAS SOME ADDITION IN THE NEXT YEAR OF ABOUT ` .10 LAKHS AGAINST COST OF PROJECT OF ` .5.5 CRORES IS NOT A SIGNIFICANT AMOUNT AND WHICH COULD BE DUE TO SM ALL REPAIRS. 7. ON THE OTHER HAND, THE LD AR ARGUED THAT ASSESSING O FFICER HAS NOT COMMENTED ADVERSELY DURING REMAND PROCEEDINGS. HE FURTHER ARGUED THAT THOUGH THERE WAS NO FORMAL AGREEMENT FO R BUY BACK BUT DUE IMPLICATION CAN BE DRAWN FROM THE FACT THAT THE PARTIES WERE ITA NO2498/DEL/2011 7 INVESTORS AND AMOUNT WAS REFUNDED TO THEM IN THE NEXT YEAR. IN THIS RESPECT, HE TOOK US TO PAGES 56 TO 59 OF PAPER BOOK WH EREIN COPIES OF ACCOUNTS OF THE TWO PARTIES FOR THE PERIOD FROM 1.4.2 007 TO 31 ST MARCH, 2003 WERE PLACED. HE FURTHER ARGUED THAT INCOME ARI SES ONLY WHEN THE GOODS ARE HANDED OVER AND SALE DEED IS EXECUTED IN FAV OUR OF BUYERS. IN THE PRESENT CASE NO SUCH DEED WAS EXECUTED AND HENCE IT CANNOT BE SAID THAT SALES HAD ACCRUED. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PAR TIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE HAVE OBSERVED THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND IT IS A COMMON PRACTICE IN THE CONSTRUCTION BUSINESS THAT SHOPS/P LOTS ARE BOOKED IN ADVANCE AGAINST INITIAL AMOUNT AND THEN DU RING COURSE OF CONSTRUCTION THE INSTALLMENTS ARE COLLECTED AND THE I NVESTOR IS GENERALLY GIVEN AN OPTION TO EXIST ANY TIME AND MONE Y IS REFUNDED TO THEM IF THEY DO NOT INTEND TO BUY. THIS PRACTICE IS D ONE TO MEET THE COST OF PROJECT WHICH GENERALLY IS QUITE HIGH. IN THE PRESENT CASE ALSO, THE SAME TRADE PRACTICE WAS FOLLOWED AND ADVANCE WAS R ECEIVED FROM TWO PARTIES. IN THE CASE OF M/S EAGLE BUILDCON PVT. L TD. THE SALES WERE BOOKED ON 15.6.2007 I.E. IN THE NEXT YEAR AGAINST EN TIRE AMOUNT RECEIVED FROM IT AND IN THE CASE OF M/S BMRC CONSTRUCT ION PVT. LTD. SALES WERE BOOKED FOR AN AMOUNT OF ` .4,47,510/- AND THE BALANCE AMOUNT OF ` .71,02,000/- WAS RETURNED BACK IN THE NEXT YEAR. MOR EOVER, THE ASSESSING OFFICER HAD ADDED BACK THE ENTIRE AMOUNT OF ADVANCE RECEIVED AS INCOME OF THE ASSESSEE WITHOUT REDUCING THE COST OF SALE WHICH IS AGAINST THE NATURAL JUSTICE AND AGAINST THE A CCEPTED ACCOUNTING PRINCIPLE. THEREFORE, IN OUR CONSIDERED V IEW, THE AMOUNT RECEIVED BY THE ASSESSEE CANNOT BE SAID TO BE SALE IN THE YEAR UNDER CONSIDERATION AND LD CIT(A) HAD RIGHTLY DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. ITA NO2498/DEL/2011 8 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 10. ORDER PRONOUNCED IN THE OPEN COURT ON 7TH DAY O F SEPTEMBER, 2012. SD/- SD/- (RAJPAL YADAV) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DT.07.09.2012. HMS COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). DATE OF HEARING 26.7.2012 DATE OF DICTATION 4.9.2012 DATE OF TYPING 5.9.2012 DATE OF ORDER SIGNED BY 7.9.2012 BOTH THE MEMBERS & PRONOUNCEMENT. DATE OF ORDER UPLOADED ON NET 7.9.2012 & SENT TO THE BENCH CONCERNED.